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The Customer Acquisition Cost (CAC) payback period refers to the number of months it takes for a company to recover the cost of acquiring a new customer (break-even point), based on the average customer lifetime value.
This metric is often used to determine whether a marketing team's efforts were successful, as it measures the return on investment (ROI) based on the average monthly contribution per customer.
Understanding acquisition efficiency through CAC payback calculation is critical for comprehending a company's cash flow.
It helps business leaders to:
However, the CAC payback metric must be matched with other key metrics such as customer lifetime value (LTV) or the LTV:CAC ratio.
In general, the lower the CAC payback, the better. The recommended average CAC payback period for SaaS startups spans between 5 and 15 months.
Yet, early-stage companies may have a longer CAC payback than well-established organizations since this measure fluctuates as they grow.
Larger enterprises, on the other hand, might also have longer CAC payback periods since they have more access to capital and resources, allowing them to cover more acquisition approaches over a specific time period.
Businesses must reduce the cost of acquisition while keeping ROI in mind to achieve their growth targets and reach a shorter payback period. Here are four actions managers may take to do this: